2005 (5) TMI 698 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction for investigation under Section 237(b)(i) of the Companies Act.
2. Prima facie case for investigation under Section 237(b)(i).
3. Simultaneous investigations by SEBI, CBI, and the Department of Company Affairs.

Issue-wise Detailed Analysis:

1. Jurisdiction for Investigation under Section 237(b)(i):
The primary contention by the appellants was whether the business of the company must be in operation at the time when the power under Section 237(b)(i) is sought to be exercised. The appellants argued that since the companies were not carrying on any business at the time of the respondent's application, the respondent had no jurisdiction to investigate under Section 237. The court found this submission involved mixed questions of law and fact. The learned single judge had already decided against the appellants on both counts. The court agreed with the single judge's reasoning that despite the severe hampering of business operations due to various investigations and orders, it could not be inferred that the companies were not carrying on any business activities. The court noted that the affidavits filed by the appellants indicated that they were indeed conducting business, particularly in liquidating dues to banks and creditors. Thus, the court concluded that the companies had not ceased all business activities, making the provisions of Section 237 applicable.

2. Prima Facie Case for Investigation under Section 237(b)(i):
The court examined whether the respondents had made out a prima facie case for investigation. The respondents based their application on materials from the Joint Parliamentary Committee report, investigations under Section 209A of the Companies Act, and an interim report by SEBI. The court noted that the material warranted an investigation, particularly concerning the sudden collapse of the stock market in 2001 attributed to Ketan Parekh and his entities. The Company Law Board had found grounds for investigation under Section 237(b)(i), citing allegations of fraud and scams against the corporate entities controlled by Ketan Parekh. The court agreed that the facts disclosed in the reports warranted investigations of every type, including those under Section 237.

3. Simultaneous Investigations by SEBI, CBI, and Department of Company Affairs:
The appellants contended that simultaneous investigations by SEBI, CBI, and the Department of Company Affairs under Section 209A should preclude a fresh investigation under Section 237(b)(i) on the same material and facts. The court did not find merit in this argument. It emphasized that the nature of the evidence and information before it justified the exercise of powers under Section 237. The court noted that the ongoing investigations by other authorities did not preclude the necessity and justification for an investigation under Section 237, especially given the serious allegations and the material available.

Conclusion:
The court dismissed the appeals, agreeing with the learned single judge that the conduct of some business by the appellants was clearly established, and thus, the provisions of Section 237 were applicable. The court found no fault with the reasoning of the learned single judge on both the legal and factual questions raised by the appellants. The appeals were accordingly dismissed.